RETAIL investors appear to be having second thoughts on investing in equity schemes of late. As per the latest data released by Association of Mutual Funds (AMFI), net inflows into equity funds during the first two months of 2007 has slowed down to Rs 3,663 crore as compared to Rs. 6,607 crore in the corresponding period of the previous year. Usually, inflows into equity funds pick up during the fag end of a financial year. But this time around, investors appear to be rattled by the volatile trend in the past couple of months. According to some financial planners, the money that used to flow into tax -saving equity schemes is now heading for safer havens like 5 year fixed deposits that also offer tax benefits. Some banks are now giving 9.50-9.75% returns for its fixed deposits holders.
Says Sameer Kamdar, country head-mutual funds, Mata Securities, "Higher post-tax returns on 5-year bank deposits have seen many investors preferring them over ELSS. Also, with 'mediocre' returns expected from equity markets going forward, the lure of higher returns no longer exists." There are two major reasons why inflows into equity funds increase in the December-March period every year. First, this is the time when most fund houses dole out dividend. And distributors of- ten sell the dividend story akin to a stock that is soon going ex-dividend and investors fall for the bait. Market sources even hint at many HNIs being tipped off in advance about dividend record dates that helps them beat the 90-day Sebi rule aimed at preventing ‘dividend stripping'. Secondly, marketing initiatives for ELSS schemes also start around this ' time, leading to higher inflows into these funds.
So what has changed? Clearly, the downtrend in the stock market, since the second week of February has shaken the confidence of investors. At this point, downside risks far outweigh the potential savings in tax by investing in the stock market.
This flip-flop in investment strategies of retail investors is nothing unusual, finds an ETIG study. A comparison of Sensex values and equity fund buying reveals that retail investor waits for too long to be convinced that the market is indeed in a bull phase. Only then does he start investing his money. Often in his quest to time the market, he catches the bull wave by its tail. In other words, he enters the markets when the markets are dose to peaking.
When there is a correction, he is usually among the first ones to jump ship. Data for the past eight years shows that during the bearish periods of 2001 and 2002, not much money flowed into equity funds.
Says Sameer Kamdar, country head-mutual funds, Mata Securities, "Higher post-tax returns on 5-year bank deposits have seen many investors preferring them over ELSS. Also, with 'mediocre' returns expected from equity markets going forward, the lure of higher returns no longer exists." There are two major reasons why inflows into equity funds increase in the December-March period every year. First, this is the time when most fund houses dole out dividend. And distributors of- ten sell the dividend story akin to a stock that is soon going ex-dividend and investors fall for the bait. Market sources even hint at many HNIs being tipped off in advance about dividend record dates that helps them beat the 90-day Sebi rule aimed at preventing ‘dividend stripping'. Secondly, marketing initiatives for ELSS schemes also start around this ' time, leading to higher inflows into these funds.
So what has changed? Clearly, the downtrend in the stock market, since the second week of February has shaken the confidence of investors. At this point, downside risks far outweigh the potential savings in tax by investing in the stock market.
This flip-flop in investment strategies of retail investors is nothing unusual, finds an ETIG study. A comparison of Sensex values and equity fund buying reveals that retail investor waits for too long to be convinced that the market is indeed in a bull phase. Only then does he start investing his money. Often in his quest to time the market, he catches the bull wave by its tail. In other words, he enters the markets when the markets are dose to peaking.
When there is a correction, he is usually among the first ones to jump ship. Data for the past eight years shows that during the bearish periods of 2001 and 2002, not much money flowed into equity funds.
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